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Mkm Presentation October 2011

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Mkm Presentation October 2011

  1. 1. Confidential October 2011
  2. 2. MKM Opportunity Fund ( the “Fund”) has been formed to investin the small cap market using a private equity strategy butadding the liquidity of public stocks.  Small cap equity markets have had significant inefficiencies for years.  The market need for financing is now even more underserved with fewer than ever institutional investor options for smaller and micro companies.  Executive team with extensive experience as public company CEOs and CFOs, portfolio management and investment banking.  Full transparency based on public company investing  Proven ability to realize gains through public market exits.
  3. 3. Returns  4.83% net return for 2008 (beginning at inception in June 2008)  55.08% net return for 2009  40.32% net return for 2010  5.73% through October 2011Key Statistics  Volatility: 21% (compared to 22% for the S&P 500 for the same period)  Alpha (annualized since inception): 33%  Beta: .19  R-squared: .04  Sharpe Ratio: 1.22 (compared to -0.16 for the S&P 500 for the same period)Realized Gains  $17 million of Shares Sold (more than 60% of the average portfolio value)  70% Profit on Sales
  4. 4.  Investment Universe: Micro to small cap companies seeking additional project or working capital Select fundamentally strong, fast growing, small companies with proven track records for an equity investment between $500,000 and $2 million Make private equity-style direct investments based on substantial due diligence and direct negotiation with companies Invest at low multiples and seek to capture “free upside leverage” with substantial warrant coverage (usually 50% - 100% coverage) Work with management primarily to assist them in capital markets, communicating story and navigating Wall Street
  5. 5. Fundamental Investing based on due diligence and structureInvest for the Upside  As part of investment, receive substantial warrant packages of various maturities to vastly improve upside potential and provide future funding for portfolio companies  Make equity-centric investments to strengthen balance sheet and raise market sentiment  Provide for aligned incentives with the company and thus help the portfolio companies realize full market potentialProtect downside  Use fundamental analysis to assure that company is fiscally strong  Structure investment to provide limited downside protection in the form of structured investments (usually in the form of convertible notes or preferred stock), anti-dilution protection and other protective covenants  Purchase stock at a discount (usually 20%- 40%) of market in a privately negotiated transaction  Because of Regulation D rules, all investments are legally based on full due diligence utilizing both public and non-public information
  6. 6. Better than open market fundamental stock-picking  Ability to acquire stake at a discount to market price  Additional upside can be gained through warrants  Downside protected through anti-dilution protection and preferred investment rights.  Ability to perform deeper analysis and due diligence including access to “non-public” information since deals are done directly with company (stock not purchased in the open market)
  7. 7.  Shorter investment horizon – typical investment duration of 15 months Full transparency – by investing in public stocks, portfolio companies are required to report all significant events. Monthly performance reporting – investors are informed of the performance on a monthly basis since there is a public mark to use for valuations. Ability to rely on publicly submitted financials – All significant events needs to be publicized and are verified by certified auditors, securities counsel and overseen by the SEC. Substantially greater liquidity – In the past 12 months, MKM has been able to turn over more than 40% (in excess of $8 million) of its average portfolio and to realize gains of more than 55% on the sales. Reduced risk from no leverage – As opposed to private equity, the warrants and discount stock prices provide leveraged returns without need for debt underpinning the investments
  8. 8. Asset Management Experience  Managing Director Research and Investments at Vision Capital Advisors reporting directly to the Portfolio Manager from Jan. 2006 to Dec. 2007  Company generated positive returns for 24 consecutive months  Participated in growth of assets under management from $12 million in January 2006 to $625 million in December 2007  In November 2007, Vision raised $100 million, AIM listed, closed end fund for investing in China and closed on 25 Chinese investments (all of which were listed on a US exchange)  While at Vision, Vision won “Newcomer of the Year Award” by HFM Week.Private Equity and Investment Banking Experience  Managing Director with Morgan Joseph to help build a technology banking practice in 2001  Vice President and co-head of telecommunications, corporate finance group for Gerard Klauer Mattison (purchased by Bank of Montreal) (1992 – 1999)Operating and Management Experience  Co-founder and EVP of Millivision – a homeland security technology company that was purchased by L-3 (2001-2003)  CFO of eGlobe, Inc, - a NASDAQ listed company (2000 – 2001)  Co-founder of Performance Technologies, a technology company purchased by Legent Computers from 1987 to 1990BS Electrical Engineering from Carnegie-Mellon University, MBA New York University
  9. 9. Anil Narang is a successful private equity investor and principal sponsor of transactions which have included acquisitions, leveraged recapitalizations and structured buyouts.Asset Management Experience  Principal sponsor, founder and senior executive of many middle-market companies. He has served in the capacity of CEO, CFO and COO and his experience includes using primarily private and structured equity as well as senior and mezzanine debt.  Serves as a GP and trustee for a Family LP and Trust and therefore works with the Fund on a part time, advisory basis.Operating and Management Experience  Co-founder Sheridan Square Entertainment (SSE) in 2003 where he was Chairman and CEO. SSE acquired several leading independent labels in the USA including V2 North America and Artemis Records. SSE was sold to BT Music Group in a private transaction in 2007.  Prior to SSE his group acquired several magazine companies to create the Interlink Group, which he grew from $20 million in revenues to $200 million in 3 years. Interlink was sold to Source-Interlink (NASD:SORC) in 2000.  Prior to Interlink co-founder and COO-President of Alliance Entertainment Corp (AEC). During his 5 year tenure completed 18 acquisitions and grew the business from $50 million in revenues to $750 million, with $50 million in EBITDA. The Company was listed on the NYSE and acquired by Wasserstein Perella thru a control transaction in 1996.BA in Economics from Colgate University and an MBA from New York University
  10. 10. Sean Robbie-Campbell is in charge of the initial evaluation and then due diligence of all potential MKM new investments. His previous varied industries experience includes:Asset Management Experience  Consultant on Deal Team for Vision Capital Partners. Helped develop European transaction flow  Acted as an independent broker helping several micro-cap companies access equity capital – specializing in natural resources and consumer products.Operating and Management Experience  Provided initial funding using primarily private equity and structured equity.  Founded, Acted as Board Member, Management, and/or In-House Legal Counsel at companies in many different sectors and industries including: Biotech (Pharmaceutical/Cosmetic/OTC), Technology (Internet/Software/Service Provider), Construction (Development/Commercial Real Estate) and Retail (Marketing/Sales/Distribution).  He has served in the capacity of CEO or COO in over 6 public and private companies in the last ten years.Practiced Law in Business Litigation. California Bar Member. JD - University of Texas
  11. 11. Advisory Board plays an active role within the fund.  The Advisory Board is charged with reviewing and updating:  The Fund’s Ethics Policies  The Fund’s Valuation Policies  Macro consideration of Portfolio Results Deals Bi-AnnuallyAdvisory Board Members:  Andrew Malik – Chairman and Head of Capital Markets – Needham & Company, Formerly Managing Director, Head of Capital Markets – Lehman Brothers  Joseph Pretlow – Managing Partner of JP Capital. Formerly a Managing Director/Partner at Bain Capital  Peter Coker, Jr. – Managing Partner of Pacific Advisors, an Asian-based investment bank. Former President of Reuters, Asia.  Steven Lefkowitz – Managing Partner of Wade Capital. Formerly a Vice President in Corporate Finance at Drexel Burnham Lambert. Currently a director of several public companies.
  12. 12. Sample Portfolio Investment:Valley Forge Composite Technologies (VLYF)Company Summary :  State-of-the-art homeland security technology for contraband detection  Developed in a joint venture between Valley Forge, Lawrence Livermore Laboratories and Lebedev Research Laboratories in Russia  Products for both screening people and cargo (including large shipping containers) are in production  In late stage contract negotiations with several countries including India  Generated $20+ million in orders for 2009 with 20% net margins with expectations of $100 million for 2010.Investment Structure:  Sr. Secured Convertible Note secured by all of the assets and technology of company  Convertible at a valuation of $12 million valuation  100% warrant coverage  Initial investment of $500,000 with an additional $500,000 investment after achievement of certain milestones. Average purchase price of $0.21 per share.  Sold 1.6 million shares of stock at average price of $1.66 per share for realized gains of $2.25 million
  13. 13. Sample Portfolio Investment:Echo Therapeutics (ECTE)Company Summary :  Created the first continuous, non-invasive glucose monitor  Developed in conjunction with Dr. Bob Langer of MIT  Platform technology has been expanded for the transdermal delivery of medicines (e.g. topical lidocaine) and monitoring of other analytes  Completed phase 2 testing for both glucose monitoring and transdermal delivery of lidocaine. Finalizing of Phase 3 testing and final approval expected in near term  Strategic partnerships/distribution agreements with Ferndale Pharma and Handok Pharma (largest pharmaceutical company in Korea).Investment Structure:  Initial investment of Sr. Secured Convertible Note secured by all of the assets and technology of company with warrants  Convertible at a valuation of $10 million valuation  100% warrant coverage  Currently own 1 million shares of stock at an average price of $0.90 per share with an additional 1 million warrants.
  14. 14. Valuation PolicyPublic Companies  All convertible securities are valued on an as-converted basis. No value is given to preference or other downside protection. Fund will not trade in portfolio companies over the last 5 days of a month.  Stock Price  Free trading stock is valued at the closing bid price at the end of the month.  Restricted securities are discounted based on the time until they become freely tradable and on trading volume  Warrants are valued using Black-Scholes values  If restricted, stock price is discounted in accordance with discounts for restricted stock  Volatility is capped at 100%  “Time value” on securities tradable under Rule 144 or a valid registration statement are discounted approximately 75% with further discounts for lack of trading volume  “Time value” on securities that are restricted are discounted approximately 87% with additional discounts for lack of trading volumePrivate Investments  Non-publicly traded securities are held at cost until an exit, a public quotation or a material event (usually a follow-on financing) occurs
  15. 15. Fund Structure and Summary of TermsMinimum Investment $500,000 by qualified investorsSubscriptions MonthlyRedemptions 18 month lock-up then quarterly thereafter with 180 day written noticeFees 2% management fee and 20% incentive feeInvestor reporting Monthly reports (initial estimates within 4 business days from month end), quarterly updates and annual audited financialsLegal Greenberg Trauig, and Ogier (Cayman)Auditor Rothstein Kass, LLCAdministrator SS&C Technologies, Inc.Prime Broker Merrill Lynch (a division of Bank of America)
  16. 16. DisclaimerTHIS PRESENTATION SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUYWHICH MAY ONLY BE MADE AT THE TIME A QUALIFIED OFFEREE RECEIVES A CONFIDENTIAL PRIVATE OFFERINGMEMORANDUM (“CPOM”) DESCRIBING THE OFFERING AND RELATED SUBSCRIPTION AGREEMENT AND IN THECASE OF ANY INCONSISTENCY BETWEEN THE DESCRIPTIONS OR TERMS IN THIS PRESENTATION AND THE CPOM,THE CPOM SHALL CONTROL. THESE SECURITIES SHALL NOT BE OFFERED OR SOLD IN ANY JURISDICTION INWHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL UNTIL THE REQUIREMENTS OF THE LAWS OFSUCH JURISDICTION HAVE BEEN SATISFIED. WHILE ALL INFORMATION PREPARED IN THIS PRESENTATION ISBELIEVE TO BE ACCURATE, MKM CAPITAL ADVISORS MAKES NO EXPRESS WARRANTY AS TO THE COMPLETENESSOR ACCURACY NOR CAN IT ACCEPT RESPONSIBILITY FOR ERRORS APPEARING IN THIS PRESENTATION. ANYPROJECTIONS, MARKET OUTLOOKS OR ESTIMATES IN THIS PRESENTATION ARE FORWARD-LOOKING STATEMENTSAND ARE BASED UPON CERTAIN ASSUMPTIONS. OTHER EVENTS WHICH WERE NOT TAKEN INTO ACCOUNT MAYOCCUR AND MAY SIGNIFICANTLY AFFECT THE RETURNS OR PERFORMANCE OF THE FUND. ANY PROJECTIONS,OUTLOOKS OR ASSUMPTIONS SHOULD NOT BE CONSTRUED TO BE INDICATIVE OF THE ACTUAL EVENTS WHICHWILL OCCUR. THIS PRESENTATION IS NOT INTENDED FOR PUBLIC USE OR DISTRIBUTION.

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